With a background in economics and public policy, I've covered domestic and international energy issues since 1998. I'm the editor-in-chief for Public Utilities Fortnightly, which is a paid subscription-based magazine that was established in 1929. My column, which also appears in the CSMonitor, has twice been named Best Online Column by two different media organizations. Twitter: @Ken_Silverstein. Email: ken@silversteineditorial.com

U.S. Natural Gas Is Not A Weapon To Be Wielded Against Russia

All things considered, natural gas exports may not be a useful weapon in the United States’ quest to punish Russia after its annexation of Crimea. In fact, it may not even amount to a slap on the wrist.

With the approval this week of the export facility, Jordan Cove in Coos Bay, Ore., the thinking is that liquefied natural gas, or LNG, can be shipped around the world and compete head on with Russian natural gas that travels through international pipelines and into Europe. But that’s not likely to be the case: It will take billions of dollars to retrofit the U.S. infrastructure and to transport the resulting fuel, meaning the Europeans won’t get much of a deal.

In due time, a global natural gas foundation may be laid here — but the whole geo-political chessboard will have been reshuffled. The argument that the United States must show its strength and move forward is therefore a bit spurious, although the points about opening borders and allowing free trade remain formidable.

“U.S. Exports are unlikely to make much of a dent into European and Asian markets currently serviced by Russia within the next next decade,” says Hill Huntington, executive director, EnergyModeling Forum, at Stanford University, in an interview. “There are other sources in the Middle East and elsewhere that may be a lot more competitive with Russian supplies than U.S. exports.”

Conversion of an LNG import facility to one that can export the fuel is a multi-billion enterprise. The natural gas must first be processed and super-cooled before it would be sent on tankers to its ultimate destination, where a receiving facility on the opposite end re-gasifies the shipment.

As for Europe, it now gets about a quarter of its natural gas from Russia and it pays about $11 per million Btus. In this country, we’ve been paying $4 for the same unit, although this winter the price did spike in certain areas of the country. Asia pays about $18 per million Btus. Cheap U.S. gas seems like a solution — but not much of one after after all the costs are tacked on to its product.

Interestingly, 10 years ago no one thought this country would be an exporter of natural gas. But the newfound discoveries of shale gas through fracking technologies have changed all that. Now, the U.S.Energy Information Administration is projecting that the unconventional fuel will make up about 50 percent of all natural gas discoveries here by 2040.

Even before the whole Russia-Ukraine flare up, producers such as ExxonMobil have said that they should be able to ship their product to where they get the best prices. And they have friends in high places — the ones who control the committee process in the U.S. Congress and who want a faster permitting process.

But U.S. Energy Secretary Ernest Moniz says that the approach will continue to be methodical and that regulators will not cut any corners, although he has said that the Obama administration will consider the global political and economic context.

In 2012, Cheniere EnergyCheniere Energy, which owns the Sabine Pass that sits on the Texas and Louisiana border, became the first operator to get government permission to export LNG. Its unit is now under construction and it is expected to start shipping LNG by 2016. Among the others to have to also gotten approval: Freeport McMoRan Energy, Sempra U.S. Gas and Power and Dominion ResourcesDominion Resources.

Altogether, about 93 billion cubic feet of this country’s natural gas wealth could be shipped overseas. In a national economy that values the free flow of goods and services, should this not be acceptable?

The arguments against doing so are coming from environmentalists who are concerned about the added development and the increased air emissions as well as from heavy industry. Those companies have relied on cheap energy to fuel their expansions. Chemical makers, led by Dow Chemical, are arguing that if they are less competitive in today’s brutal international market, then jobs will be lost.

Projecting future exports and fuel prices is not a science but it stands to reason that if those sales are modest, price pressures would be minimal. Similarly, if that demand is great, then producers would work harder to keep up, thus curbing fuel costs. Research done by Stanford University says that the price increases as a result of U.S. exports could be as much as $1 per million Btus, although it would likely be in the area of 40 cents per million Btus.

“If the size of that additional export demand is modest relative to the scale of domestic supply—as most experts believe—then the impact on domestic energy prices will also be modest,” adds Richard Newell, who is the director of Duke University’s Energy Initiative and the former administrator of the Energy Information Administration, in an interview. “If U.S. gas prices were to increase substantially, U.S. LNG would become less competitive, decreasing its demand, and bringing prices back down.”

Fearing free trade is not the answer, insists Newell. The United States cannot chastise China for limiting exports for rare earth minerals, for example, while taking a similar approach with regard to natural gas exports. In a global marketplace that is committed to open borders, some players are bound to get hurt but the broader society should benefit.

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This is the same argument people have used against ANWR since the 70s: it will take years before the additional oil/gas makes a dent in prices at the pump. Ten, twenty, thirty years later we still dawdle and tomorrow never comes. The added supply of Nat Gas to world markets represents 1. a cusion to supply shocks 2. an alternative to Russia if they should ever decide to cut or halt European delivery 3. reduced influence of Iran, Qatar and Russia in dictating world prices. What does it matter if it takes 5, 10 or 20 years to make this happen?

Filo, your point is well taken and one that can be made with respect to any fuel technology: nuclear, renewables, gas, carbon capture and so forth. This case, though, is different from ANWR in that they are drilling — in record amounts/numbers. Two points the story makes: First, U.S. gas won’t serve as a deterrent to Russian aggression for the reasons stated in the piece. And, second, the issue of exports is separate from that and it is something that is truly valid in a free economy. So, the story would conclude that if does take 20 years to ship the LNG, fine — but don’t expect miracles from it, although our domestic economy should benefit. Ken

Mr. Silverstein has apparently never lived in Europe and has no clear understanding of the deep anxieties that Europeans, particularly “border Europeans,” have about Russian behavior. Europe is placed in the position of being reliant on Russian gas (and oil) and paying dearly for it, easily three times the price we pay in the USA. You do not take gas sales to Europe as some “free-market” mantra idea; no, it is done with the specific intention of depriving Russia of a huge cash-cow source of hard currency with which to finance their military adventurism. And the way you deal with that is to cut them off from their cash.

The US thus constructs, on a rush basis, a LNG gasification facility in Odessa. LNG shipping is a mature technology, and you spend the cash to accomplish the goal same as you spend $2.6 Billion each for 46 new nuclear subs; you need the deterrence result. the problem with FORBES writers is that they cast their writings in terms of “free market,” the God upon which Forbes operates. Forget “free market;” what is needed is Results, to counter a continuing Russian military threat.

As far as financing goes, if you are sourcing gas at $4 and selling it in Ukraine, Germany, Poland, Latvia at $12 (the Russian extortionate price), then you have $8 to play with to liquefy and gasify the stuff. You are not going to seriously tell me that it costs $8 to accomplish that. Whatever the difference is, that cash can be used, at least in part, for the deliberate purchase of Ukrainian manufactures and farm products, again depriving Russia of Ukrainian grains. As Ukrainians obtain prosperity and the border Russians (including the Crimean Russians) sink into financial oblivion, the object lesson is: forget about Russia, that is the path to perdition and ruin. And that is exactly the message you want to send.

Mr. Silverstein doesn’t see it; that is his failure. No need to make his abject failures becomes the centerpiece of US foreign policy. Forget Silverstein; ship LNG.

the major petrochemical and fertilizer operations are lobbying hard to slow down any export of lng their fat profits have rested on a massive spread between their feedstock costs – US nat gas – and the world price for their commodity output

The need for ice free seaport access has driven Russian politics for 600 years.

Exporting LNG to Europe is not going to change that.

If you insist on reopening the Cold War with this object in mind, it is an especially bad idea to use a finite resource as a trade war weapon. Particularly, when the finite product you are counting on can also be made, cleanly, safely, economically, and renewably from waste materials available everywhere.

You won’t change Russian politics, you’ll use up your own resources and drive your own prices sky high(including taxes to pay for all the military adventurism), you’ll provoke another confrontational Cold War, and the people you are trying to “save” from Russian domination will simply start making their own biogas and be free of Russian domination AND US domination as well.

They will be making their own CH4 by anaerobic digestion. They will have clean abundant energy—their sewage and wastes will be treated and recycled, they will be paying taxes to buy needed social programs instead of weapons, they will have clean air, clean water and fertile soil without the need for artificial fertilizers.(the left over by products of producing CH4 by anaerobic digestion are clean water and compost–the most fertile soil you can have).

Using a fossil fuel in a trade war to gain an economic advantage? Dumb idea.

Or, we could manufacture anaerobic digestion equipment and even turn key factories for the production of biogas by anaerobic digestion—-as the Germans are doing right now. Germany already produces about 20% of their natural gas usage by AD, and AD equipment, know how, and turn key operation export is a major export industry for Germany. Germany is easily 15 to 20 years ahead of the US in this energy/market area. You can walk into to any auto dealer in Germany and buy a bi-fuel petro/natural gas vehicle. Germany(about the size of Missouri and Iowa put together, has over 900 CH4 refueling stations available—and over 200 of those have a 100% biogas option available.

Point taken, it will take a significant amount of time to get US LNG flowing to Europe. Another perspective on the same point: Power station construction leadtimes: Nuclear: 10 – 15 years Coal: 7 – 10 years Nat gas: 3 to 5 years Wind: 2 to 3 years Solar: 90 days All of these electricity generation technologies can displace each other. Ukraine’s 8% of electricity generated from natural gas could be displaced in the shortest timeframe using renewables.